U.S. Mortgage Rates Rise to Highest Since September

Home prices in 20 U.S cities rose 13.6 percent in October from a year earlier, the biggest gain since February 2006, according to the S&P/Case- Shiller index. Photographer: Matthew Staver/Bloomberg

Jan. 2 (Bloomberg) -- U.S. mortgage rates rose to the
highest since September, increasing borrowing costs for
homebuyers as prices climbed across the country.

The average rate for a 30-year fixed mortgage was 4.53
percent this week, up from 4.48 percent, according to a
statement today from Freddie Mac. The average 15-year rate
climbed to 3.55 percent from 3.52 percent, the McLean, Virginia-based mortgage-finance company said.

While a jump in mortgage rates since May has slowed demand,
buyers drove up prices for a limited supply of properties that
included fewer discounted foreclosures. Home prices in 20 U.S.
cities rose 13.6 percent in October from a year earlier, the
biggest gain since February 2006, according to the S&P/Case-Shiller index.

“Price growth was given a helping hand by the declining
share of distressed sales,” Patrick Newport and Stephanie
Karol, economists at IHS Global Insight in Lexington,
Massachusetts, said in a Dec. 31 research note. “Homes which
were previously sold at a heavy discount are no longer fetching
a fraction of their value; this is probably causing the index to
overstate home price appreciation.”

Contracts to buy previously owned homes rose 0.2 percent in
November, the first increase in six months, after a 1.2 percent
drop in October that was larger than initially reported, the
National Association of Realtors said on Dec. 30.

Mortgage rates have climbed from near-record lows in May on
speculation that the Federal Reserve would begin to taper bond
purchases that have stimulated the economy. The average 30-year
mortgage rate reached a two-year high of 4.58 percent in August,
up from 3.35 percent in early May.

The central bank said on Dec. 18 that it would trim the
monthly asset purchases starting this month.